The Catalonian Parliament could unilaterally declare independence in the coming days

President Rajoy is asking all political parties to sit down at the negotiating table

According to the Catalonian Regional Government, nearly 2.2 million citizens took part on Sunday in a referendum about Catalonia’s independence amidst a climate of high tension, chaos and police repression. This figure accounts for only 42% of the 5.3 Catalonians eligible to vote, of which 2 million supported secession (around 37.8% of the census). However, the referendum has not been authorised by Spain’s government and the Constitutional Court declared it illegal and suspended it.

In spite of this, Catalonia’s Regional Government announced that it did not recognise the Spanish illegality and would hold the referendum, arguing it was protected by international legality. Several members of the [Regional Government] Generalitat have thus risked legal processes that may lead to their disqualification and even prison sentences.

Due to these reasons, the referendum took place without the minimum guarantees required to be considered valid, as repeatedly stated by the Venice Commission of the European Council: there was no electoral authority, the census was obtained illegally violating the Data Protection Law, there were no inspectors at the voting stations and no information campaigns aimed at explaining the consequences of a hypothetical independence to the population have taken place.

Following the Court’s instructions, the police arrested the members of government in charge of organising the vote, seized over 9 million ballot papers and 1.5 million envelopes and also seized 50,000 census letters aimed at members of the voting stations. In addition, the Court ordered the police yesterday to close electoral colleges in order to physically prevent the vote from taking place, giving rise to violent police charges against citizens who wanted to vote.

In spite of all this, the popular movement has been unprecedented and cannot be ignored. Over 750 out of the 948 Catalan municipalities have shown their support for the referendum (although these represent only half of the census). Hundreds of thousands of citizens have taken up the call for democracy and demanded a referendum, while many of them occupied the electoral colleges throughout the night, blocking the police’s access to prevent their closure.

Current political context

Spain is a State comprised of various Autonomous Regions, with a territorial organisation that is similar to a federation with a high level of decentralisation of competencies. Catalonia is the second Spanish region in terms of population, with 7.5 million inhabitants out of a total of 46.6 in all of Spain. Its GDP is €211,915 M, which represents 18.8% of Spain’s total. In 2016, Catalonia’s per capita GDP was around €28,590, compared to €24,100 for the country as a whole. However, territorial tension, mainly in Catalonia and the Basque Country, has been a recurrent issue since the Spanish Constitution of 1978 was approved, with nationalist regions demanding more self-government, better financing, more investment and management of infrastructures, and competencies in language policy, education and culture.

At present, the Catalonian Parliament, elected in 2015, included a majority of independence party seats (although, this is due to the effects of the Election Law and does not correspond to the number of votes obtained). According to the latest survey published by the Generalitat’s Centre for Opinion Studies, only 41.1% are in favour of independence, but all polls point that 80% of Catalans agree that a referendum on Catalonia’s future should take place.

Mariano Rajoy’s government has repeatedly refused to negotiate organising a referendum with the Generalitat and, to a certain extent, this has turned Sunday’s citizen movement into an act of defence of the democratic right to celebrate a legal consultation on the future of Catalonia more than a vote on independence itself. However, the violent images of the police going into electoral colleges to seize the ballot boxes have generated a very strong cohesion among the Catalan society against a Government that has been unable to provide a political solution. The break with Spain has currently become an emotional issue.

International community’s vision

Until Sunday, the international community had been very prudent in its statements about Catalonia’s referendum, despite some explicit shows of support for Rajoy, such as the meeting with Donald Trump at the White House, Chancellor Angela Merkel and French President, Emmanuel Macron.

In recent days, and particularly after the images of police charges were published, several voices have started to appeal to dialogue and urge a political solution: the president of the European Parliament, Antonio Tajani, Jeremy Corbyn, Martin Schultz and Charles Michael, Belgian Prime Minister, all spoke yesterday in this sense. On Saturday, the Financial Times put Catalonia on its cover and published a forceful op-ed entitled “Catalonia’s independence is bad for Spain and for Europe” in which it highlighted two clear messages: Rajoy’s Government has “wasted” the opportunity to negotiate and the referendum “has neither legal validity nor political legitimacy.” Images of police repression are on the front covers of newspapers around the world.

It is obvious that the problem is very serious and requires a political solution so both governments must sit down to negotiate.

Economic and financial consequences

Up until now, financial indicators have not reflected that the independence process has had any impact in terms of financial forecasts: Spain’s growth forecast is still around 3.1% for 2017.

The political tension has not affected the Catalonian economy either: forecasts point to a growth above 3% for this year; job creation continues to increase at a good pace and most analysts expect a drop in unemployment down to 9.3% before the end of 2018; direct foreign investment is growing; the price of Catalonian banks is slightly higher than the rest, and Spain’s risk premium continues to be stable, all of which reflects a very small relative risk for the country’s economy.

Financial markets have not appeared worried and instead continue to trust that Spain and Catalonia’s economies will not be significantly affected. However, if the political situation entered a temporary state, this could lead to an inhibition of investment and a risk of delocalisation.

In this regard:

Ibex 35, the Spanish Stock Market, dropped 1% early this morning.

Last Thursday, the Governor of Spain’s Central Bank warned about the economic risk that Catalonia’s independence would represent.

The Minister of Finance has announced this week that, due to the lack of parliamentary support, he will not be presenting the State’s General Budget for 2018 and will instead extend this year’s.

On Friday, Standard & Poor’s halted a possible increase of Spain’s rating and warned about the risk of political instability in Catalonia.

A minor union has called for a general strike in Catalonia starting on October 3rd. This may extend to other unions and political parties due to yesterday’s police intervention.

What now? Possible scenarios

Unilateral declaration of independence. According to the Referendum Bill that the Catalonian Parliament approved and the Constitutional Court suspended, a YES result would lead to a unilateral declaration of independence after 48 hours. On Sunday night, the President of the Generalitat clearly pointed in this direction in his institutional statement. Members of the Government would risk prison and disqualification. In any case, international support for such unilateral declaration would be very rare in light of the illegality of the process, its lack of safeguards and the impossibility of confirming the vote’s result.

Suspension of Catalonia’s autonomy. If political tension were to increase, the Government could activate, in accordance with the Constitution, the procedure to suspend Catalonia’s political autonomy. This scenario is highly likely if Catalonia were to unilaterally declare independence.

Maintaining a legal and agreed referendum. Catalonia and Spain’s Governments start conversations aimed at setting the basis of an agreed referendum. This seems unlikely because the large majority of national parties -PP, PSOE and Ciudadanos- are against such self-determination referendum. Moreover, both governments have mutually excluded each other as valid representatives.

Vote of no confidence in Prime Minister Rajoy. Although opposition parties could form an alternative government to Rajoy, it seems very unlikely that they will contribute to weaken the State even further at a time of maximum political and social tension. The words of PSOE’s leader, Pedro Sánchez, have dispelled this possibility. In any case, [Basque Nationalist Party] PNV, which will play a key role in ensuring the Government’s stability and approving the Budget, seems unlikely to support Rajoy again in the light of yesterday’s events.

Constitutional reform. Political negotiation seems inevitable and Spain is in need of renewing its constitutional framework after nearly 40 years of its approval. This seems the most likely scenario. Two weeks ago, Spain’s Congress of Deputies approved the creation of a specific commission with that objective, which could accelerate the debate. Last night, Prime Minister Rajoy urged all political parties to initiate a dialogue.

General election. Government sources have insinuated that if Mariano Rajoy does not obtain the backing of the main national parties, he could consider an early election.

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